Nova workboard

a blog from young economists at Nova SBE

The real impact of migration on labor market

In the immigration host countries since always exists a public debate about whether newcomers have a positive or negative impact on the labor market and especially on the rate of unemployment. In common views immigrants take the work of native inhabitants. On these social moods a populist actions brings more popularity to politics. As an example we can take the British Prime Minister James Cameron who recently has announced that his government will introduce significant changes in migration policy. He wants British workers to be privileged in obtaining work, jobs advertisement will no longer be emitted in foreign countries and support for immigrants will be reduced to the minimum. This will lead to the cut in number of immigrants in Great Britain. But what in reality is the immigrants’ effect on labor market in a host country?

In theory, the impact of immigration on wages and employment of citizens of the host country depends primarily on the complementarity or substitutability of skills and work experience of immigrants relative to the current workforce. Not without significance is the way in which the labor market reacts to the increase in labor supply and more broadly on the characteristics of the host economy. The impact of immigration on the labor market is different depending on the time horizon considered. In the long term labor market adjusts completely to the increase in labor supply, while in the short term, these changes are more visible and tangible. It means that in the short term labor market is in the state of positive shock of labor supply. In the case of similar professional skills of immigrants, in the short term influx of workers will result in directly increased competition in the labor market and hence a decrease in salary. The closer and more are identical with respect to the ability of immigrants domestic workers present, the greater the expected reduction in wages. We should take into consideration that job positions taken by newcomers can be currently filled also by the previous wave of immigration. In this case not only domestic workers would suffer from the decrease of salary.

On the other hand if the skills of immigrants are complementary to the skills of existing employees and thus are complementary then the additional capacity of the incoming workforce will increase productivity, which can lead to higher earnings in the labor market. In addition, immigration may increase the demand for labor. This is due to the increase in demand for goods and services, espouses the “new” consumers in the market. In the long term, immigration will lead also to  increase in investment. Both of these phenomena cause an increase in demand for labor, thereby increasing wage and employment in the economy. In other words, the number of jobs in the economy is not constant, which contradicts the myth of scarce jobs in the economy – “The lump of labor fallacy”. Economic migration can both increase competition for existing workers in the labor market, but it can also create new jobs and lead to increased investment. The extent to which this will be felt depends on the individual characteristics of the host economy.

Besides the impact that immigration has on the labor market it also influences potential GDP of the host country. Based on theoretical assumptions, the potential GDP should increase. Among experts, the disparities of the scale of these effects exist. Dominates the view, however, that these changes will be marginal – in the range of 0,1-0,2% of GDP to 10% percent flow or increase of the workforce due to migration. This statement is only true when we assume that all immigrants stay in a host country for long period. Nevertheless, we can say that immigration has many positive aspects and is an incentive for a growth in the economy.

Maciej Kimel

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Author: studentnovasbe

Master student in Nova Sbe

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